In Greek mythology, Cassandra had been loved by Apollo, and he gave her the gift of prophecy; but afterwards, offended with her, he rendered the gift unavailing by ordaining that her predictions should never be believed. So Cassandra predicted the fall of Troy, but no one listened: Troy fell and she was sold into slavery. Such is the fate of future storytellers. The truth of their prophecy is one reason why there is such bitterness towards them..

In modern terrorism, we have a similar story. Richard Clarke invited the Bush administration to take terrorism more seriously and even, on September 4, 2001, envisioned a scenario when hundreds of US citizens lay dead from a terrorist attack. He was dismissed as a Chicken Little thinker until a week later when disaster struck. Why did no one listen? For the same reason that Cassandra was sold into slavery: future stories are inherently unbelievable. 

The same phenomenon is visible now in the US economy, judging from the editorial in Barron's on April 5 outlining the four alarming disaster scenarios for the US economy, along with the complaint: no one is listening.

The problem

Huge increases in public spending, supply-side tax cuts to stimulate private consumption, and resulting outsized budget deficits are putting downward pressure on the dollar in the short run -- and dangerously undermining international confidence in the currency for the long haul. The dollar could become the major casualty.

Coming on top of the 33% percent drop in its international purchasing power against the euro in the past three years, the consequences for the dollar would be dire. Effects would be felt in both U.S. equities and fixed-income securities, as well as in the American economy and around the world.

Some economists say that the dollar's decline is cyclical. But for that to be true, the administration and Federal Reserve must convince international financial markets that the dollar should not be penalized for exactly the same type of binge spending and devil-may-care budget deficits that have sparked panic in lesser currencies (most recently the Argentine peso, and before that the ruble, the Thai baht and more pesos).

Perhaps the dollar really is immune to that type of panic just because it's the world's main reserve currency. Perhaps it is too big to fail. Perhaps not.

The alarming -- but plausible -- future stories

Barron's lays out four plausible scenarios that could trigger a panic and a run on the dollar of historic proportions:

• Panic Scenario #1: OPEC oil producers decide to stop pricing their oil in dollars, and switch to a basket of currencies for both the pricing and settlement of crude oil transactions.

• Panic Scenario #2: China does away with its currency's peg to the U.S. dollar and sells some of its large holdings in U.S. Treasuries.

• Panic Scenario #3: Japan's economy begins to hit on all cylinders, providing incentives to cash out of U.S. bonds and stocks.

• Panic Scenario #4: The jobless recovery in the U.S. stalls out, and high-tech service jobs go the way of manufacturing jobs.

Barron's concludes that "it's up to America to make sure that the dollar is too big to fail by making it too strong to fail. To the world, the dollar and all dollar-denominated assets are just investments, to be compared constantly with other investments. In global terms, the U.S. must provide a better investment return through stronger growth and a stronger dollar."

Bottom line

What is the likelihood of the administration listening to these arguments about plausible disaster scenarios? Essentially the same chance as Richard Clarke had of getting the administration to listen to his scenario of a major terrorist attack. Until economic catastrophe strikes, future stories simply aren't believed.

Read Barron's

For more examples of Storytelling in The News, go to the Archive